Thursday, November 20, 2008

I hope Obama reads

Mytheos Holt’s column in The Wesleyan Argus.

Excerpts - - -

. . . There has been much disagreement over whether the financial crisis was caused by under-regulation or over-regulation. This is a false dichotomy. What caused the financial crisis was politics, and not politics of either the sensible Left or the sensible Right.

Both of these groups would have seen the problems in the competing agendas which caused this crisis, and would have proposed different but equally sensible plans of action to deal with it. Perhaps neither plan would have been sufficient, but it certainly would have been better than what we got. . . .

[In] brief, President Bush’s profligate spending and my party’s unfortunate tendency to listen to lobbyists created a psychology of short-term incentives which ignored the looming long-term dangers. That settles that.

What did the Democrats do? Well, for starters, in the ’90s they blocked Republican efforts to reform the system which required banks to make loans to unreliable borrowers because of an unhealthy attitude that people had a “right” to own a home or a “right” to credit. At least, that was the rhetorical justification.

The actual justification probably also has more to do with lobbyists and political incentives.

Say what you like about Jack Abramoff, but Senator Chris Dodd (D-CT) and Representative Barney Frank (D-MA) shouldn’t come out of the Countrywide Scandal smelling like roses, either.

The Democratic policy on loans created the problems with the current foreclosure market, and only helped facilitate the excessively short-sighted, short-term mentality which said that if you just bought whatever you wanted now, you could let someone else clean up the mess later.

The combination of this no-risk mentality and the governmental requirement that those who actually were risky still be allowed to gamble with other people’s money was hardly a match made in heaven.

Several things must be done about this. Speaking as a fiscal conservative (not the same thing as a fiscal Republican),

I would suggest that the first thing that needs to be done is that credit needs to be cut to make up for the previous inflationary expansions, the laws requiring banks to give bad loans must be taken off the books and the debt has to be addressed, preferably through spending cuts and increases in trade to increase capital inflow to the United States (many of the world’s wealthiest companies are U.S.-based).

In short, the rules of the game must be altered to read more like Risk than like a carnival sideshow, where everyone gets a prize.

Holt’s entire column’s here.

Message to President-elect Obama: If you don’t select Larry Summers as Treasury Secretary, you could do a lot worse than Holt.

Hat tip: Instapundit